Commission rates take a chunk out of your money. Whether you’re planning to buy or sell a property, you might be thinking, do realtors always get 6% of the selling amount? We’re explaining everything about the commission rates of realtors and how you can save money by skipping 6% rates.
Do Realtors Always Get 6%?
Realtors don’t always get the full 6% commission rate, as brokerage firms divide the commission among agents. They may also get a certain amount for the costs of selling your property. However, you can still negotiate for a lower fee or avoid standard commission rates by choosing a full service flat fee broker.
The 6% commission fee comes from several factors, which we’re going to discuss, so you’ll know how to choose the best local real estate service company that can save you from paying huge rates.
Reasons Why Realtors Get a 6 Percent Commission Rate
Realtors don’t always get the 6% commission rate as they need to split this among the people involved in the transaction, including listing or buyer’s agents. Besides, realtors need to pay for the legal and logistical matters involved in the selling.
If you’re selling your house for $500,000, this implies that the realtor’s 6% commission amounts to $30,000. Real estate agents earn an average annual income of $62,000. However, that doesn’t mean the agent only needs to sell 2 houses per year to hit that income.
Considering the legal, logistical, and marketing cost of about 3% of the split commission, the take-home pay may only amount to $1,000 to $3,000. Divide that for the number of hours realtors spent working for you, and they only earn $28 to $30 per hour.
A History of Realtors Getting 6 Percent
When the National Association of Realtors (NAR) stepped in to fix commission rates in the 1940s, the standard commission rate of 6% emerged. This continues to be the standard rate for more than 50 years in the real estate industry.
While the Supreme Court ruled out the practice, it didn’t have much impact on the housing industry. Despite many lawsuits brought against the boards, the 6% commission remained the same.
Process of Paying Real Estate Agents
Realtors receive a percentage of the amount that the listing brokers earn on the sale. Hence, realtors do not always get 6% on their deals or transactions. Even after the split between the Listing agent and the Buyer’s agent, the Realtor typically has a further split with their Broker for managing legal oversight, errors and omissions insurance, technology platforms, and more.
It could be 70/30, 60/40, 50/50, although it all depends on the ratio both the agent and company agreed upon. Usually, top-producing and more experienced agents get a larger percentage of the total commission.
While there are many cases in which two parties can split the commission, a brokerage can keep the full 6% commission if it lists a house and finds a potential buyer. Moreover, about 4% of realtors consider lowering the rate if they are the only agent involved in the transaction.
Flat Fee Commission Model
The best way to push through a profitable sale is to use a flat fee model, especially if you don’t want commissions to minimize your earnings. Mainly when doing FSBO, the process can be overwhelming if you don’t have access to MLS listings for advertising.
A flat fee broker like CA Flat Fee offers a full-service listing without realtors getting 6% of the earnings. Despite the minimal rate, we will coordinate showings, manage calls from other agents, accomplish the paperwork, and negotiate until closing the deal.
This includes conducting market research, viewing your home, and setting a home inspection with an appraiser to determine the right value of your property. The service also covers sending out a professional photographer. We will even put up a ‘for sale’ sign and realtor lockbox.
Commissions When the Home Sale Doesn’t Close
Keep in mind that buyers only pay the commission after settling the transaction. However, there are many instances in which sellers are liable to pay the broker’s commission or fee even if the deal is incomplete.
If the agent has an offer from buyers who are willing to buy, the agent is still entitled to receive the commission if;
- The seller changes his mind and declines the deal
- The seller has a partner who refuses to make a deal
- The seller has a title with uncorrected defects
- The seller commits fraud in a transaction
- The seller mutually cancel the deal or transaction with the buyers
All of these instances are very rare, and typically a Realtor will preserve a relationship and future business before trying to enforce a commission based on a last minute change of heart by the sellers just before the sale is complete.
Negotiating the Realtor’s Commission Rate
You can possibly lower the 6% commission rate by discussing it with the realtor. It’s acceptable to ask agents or realtors if their fees are negotiable. However, negotiating a lower rate depends on factors, such as the type of property, demand in your locale, season, and even your agent’s experience.
To reach a mutually beneficial amount, determine your negotiating leverage by knowing the demand for properties like yours in the area. You also need to identify the average commission fee in your locale. Additionally, offer to manage the home improvements and pre-listing repairs.
Aside from that, you can interview at least 3 realtors and compare their prices. Then, when you find the lowest rate possible, you can negotiate this amount with the realtor you want to help sell your property. However, choosing a flat fee would save you energy in negotiating. It is recommended to ensure the flat fee company has an experienced Broker and offers full service.
Who Should Pay the Realtor’s Fee?
The person who pays for the realtor’s fee depends on the transaction’s circumstances. However, it’s usually the seller’s responsibility to pay for the realtor’s fee. The price generally comes from the earnings of the impending sale.
How Can I Avoid Realtor Fees?
You can avoid, or at least minimize, realtor fees when you sell a property by yourself or use online listing websites. However, if you don’t have the time, resources, or expertise in selling real estate, going this route may even be more time-consuming and costly on your end.
In a nutshell, while it’s widely accepted for realtors to get a 6% commission rate, you can still negotiate the fee before pushing through with the transaction. However, you can opt for a flat fee model if you want to avoid paying the 6% traditional commission.